INCOME TAX ACT 1967 LAWS OF MALAYSIA. Act 53 REPRINT. Incorporating all amendments up to 1 January 2006

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1 053e.FM Page 1 Thursday, April 6, :07 PM LAWS OF MALAYSIA REPRINT Act 53 INCOME TAX ACT 1967 Incorporating all amendments up to 1 January 2006 PUBLISHED BY THE COMMISSIONER OF LAW REVISION, MALAYSIA UNDER THE AUTHORITY OF THE REVISION OF LAWS ACT 1968 IN COLLABORATION WITH MALAYAN LAW JOURNAL SDN BHD AND PERCETAKAN NASIONAL MALAYSIA BHD 2006

2 053e.FM Page 2 Thursday, April 6, :07 PM 2 INCOME TAX ACT 1967 First enacted 1967 (Act No. 47 of 1967) Revised 1971 (Act 53 w.e.f. 21 October 1971) PREVIOUS REPRINTS First Reprint 1980 Second Reprint 1993 Third Reprint 2002 PREPARED FOR PUBLICATION BY MALAYAN LAW JOURNAL SDN BHD AND PRINTED BY PERCETAKAN NASIONAL MALAYSIA BERHAD KUALA LUMPUR BRANCH 2006

3 053e.FM Page 3 Thursday, April 6, :07 PM 3 LAWS OF MALAYSIA Act 53 INCOME TAX ACT 1967 ARRANGEMENT OF SECTIONS PART I PRELIMINARY Section 1. Short title and commencement 2. Interpretation PART II IMPOSITION AND GENERAL CHARACTERISTICS OF THE TAX 3. Charge of income tax 3A. (Deleted) 3B. Non-chargeability to tax in respect of offshore business activity 3C. (Deleted) 4. Classes of income on which tax is chargeable 4A. Special classes of income on which tax is chargeable 5. Manner in which chargeable income is to be ascertained 6. Rates of tax 6A. Tax rebate 6B. Tax rebate on loan to a small business 6C. Tax rebate on fees 7. Residence: individuals 8. Residence: companies and bodies of persons 9. (Deleted) 10. (Deleted)

4 053e.FM Page 4 Thursday, April 6, :07 PM 4 Laws of Malaysia ACT 53 Section 11. (Deleted) 12. Derivation of business income in certain cases 13. General provisions as to employment income 13A. (Deleted) 14. General provisions as to dividend income 15. Derivation of interest and royalty income in certain cases 15A. Derivation of special classes of income in certain cases 16. Voluntary pensions, etc. 17. Derivation of pensions, etc. PART III ASCERTAINMENT OF CHARGEABLE INCOME 18. Interpretation of Part III Chapter 1 Preliminary 19. Supplementary provisions for the interpretation of Part III 20. Basis years Chapter 2 Basis years and basis periods 21. Basis period of a person other than a company, trust body or co-operative society 21A. Basis period of a company, trust body or co-operative society 22. Gross income generally Chapter 3 Gross income 23. Interpretation of sections 24 to Basis period to which gross income from a business is related 25. Basis period to which gross income from an employment is related 26. Basis period to which gross income in respect of dividend is related 27. Basis period to which gross income in respect of interest, etc., is related 28. Basis period to which gross income not provided for by sections 24 to 27 is related 29. Basis period to which income obtainable on demand is related 30. Special provisions applicable to gross income from a business

5 053e.FM Page 5 Thursday, April 6, :07 PM Income Tax 5 Section 31. (Deleted) 32. Special provisions applicable to gross income from an employment Chapter 4 Adjusted income and adjusted loss 33. Adjusted income generally 34. Special provisions applicable to adjusted income from a business 34A. Special deduction for research expenditure 34B. Special deduction for contribution to an approved research institute or payment for use of services of an approved research institute or company 35. Stock in trade 36. Power to direct special treatment in the computation of business income in certain cases 37. (Deleted) 38. Special provisions applicable to adjusted income from an employment 38A. Limitation on deduction of entertainment expenses 39. Deductions not allowed 40. Adjusted loss 41. Ascertainment of adjusted income or adjusted loss from a business for an accounting period 42. Statutory income 43. Aggregate income 44. Total income Chapter 5 Statutory income Chapter 6 Aggregate income and total income 44A. Group relief for companies Chapter 7 Chargeable income 45. Chargeable income and aggregation of husband s and wife s income 45A. Deduction for husband 46. Deduction for individual and Hindu joint family 46A. Deduction for individual on interest expended 47. Deduction for wife or former wife

6 053e.FM Page 6 Thursday, April 6, :07 PM 6 Laws of Malaysia ACT 53 Section 48. Deduction for children 49. Deduction for insurance premiums 50. Application of section 49 where husband and wife are living together 51. Deduction must be claimed Chapter 8 Special cases 52. Modification of Part III in certain special cases 53. Trade associations 54. Sea and air transport undertakings 54A. Exemption of shipping profits 54B. (Deleted) 55. Partnerships generally 56. Successive partnerships 57. Provisions applicable where partnership is a partner in another partnership 58. Income receivable by partnership otherwise than from partnership business 59. Partnership losses 60. Insurance business 60A. Inward re-insurance: chargeable income, reduced rate and exempt dividend 60AA. 60AB. Application of sections 60 and 60A to a takaful business Chargeable income of life fund subject to tax 60B. Offshore insurance: chargeable income, reduced rate and exempt dividend 60C. Banking business 60D. (Deleted) 60E. (Deleted) 60F. Investment holding company 60FA. Investment holding company listed on Bursa Malaysia 60G. Foreign fund management company 60H. Closed-end fund company 61. Trusts generally

7 053e.FM Page 7 Thursday, April 6, :07 PM Income Tax 7 Section 61A. Exemption of Real Estate Investment Trust of Property Trust Fund 62. Discretionary trusts 63. Trust annuities 63A. Special deduction for qualifying capital expenditure 63B. Special deduction for expenses 63C. Special treatment on rent from the letting of real property of a Real Estate Investment Trust or Property Trust Fund 63D. Income of a unit trust from the letting of real property is not income from a business 64. Estates under administration 65. Settlements 65A. Co-operative Societies PART IV PERSONS CHARGEABLE 66. Personal chargeability: general principle 67. Vicarious responsibility and chargeability 68. Power to appoint agent 69. Incapacitated persons 70. Non-residents 71. Masters of ships and captains of aircraft 72. Hindu joint families 73. Trustees 74. Executors 75. Companies and bodies of persons 75A. Director s liability 76. Rulers and Ruling Chiefs PART V RETURNS 77. Return of income by a person other than a company, trust body or cooperative society

8 053e.FM Page 8 Thursday, April 6, :07 PM 8 Laws of Malaysia ACT 53 Section 77A. Return of income by every company, trust body or co-operative society 78. Power to call for specific returns and production of books 79. Power to call for statement of bank accounts, etc. 80. Power of access to buildings and documents, etc. 81. Power to call for information 82. Duty to keep records and give receipts 82A. Duty to keep documents for ascertaining chargeable income and tax payable 83. Return by employer 84. Return concerning persons other than the maker of the return 85. Return by occupiers 86. Return by partnership 87. Power to call for further return 88. Returns deemed to be made with due authority 89. Change of address 90. Assessments generally PART VI ASSESSMENTS AND APPEALS Chapter 1 Assessments 91. Assessment and additional assessments in certain cases 92. Advance assessments 93. Form and making of assessments 94. Record of assessments 95. Discharge of double assessments 96. Notice of assessment 96A. Composite Assessment 97. Finality of assessment Chapter 2 Appeals 98. The Special Commissioners and the Clerk

9 053e.FM Page 9 Thursday, April 6, :07 PM Section 99. Right of appeal 100. Extension of time for appeal 101. Review by Director General 102. Disposal of appeals 103. Payment of tax 103A. (Deleted) Income Tax 9 PART VII COLLECTION AND RECOVERY OF TAX 104. Recovery from persons leaving Malaysia 105. Refusal of customs clearance in certain cases 106. Recovery by suit 107. Deduction of tax from emoluments and pensions 107A. Deduction of tax from contract payment 107B. Payment by instalments 107C. Estimate of tax payable and payment by instalments for companies 108. Deduction of tax from dividends 109. Deduction of tax from interest or royalty in certain cases 109A. Application of sections 109 and 110 to income derived by a public entertainer 109B. Deduction of tax from special classes of income in certain cases derived from Malaysia 109C. Deduction of tax from interest paid to a resident 109D. Deduction of tax on the distribution of income of a unit trusat 110. Set-off for tax deducted 110A. Non-entitlement of an offshore company for set-off 111. Refund of over-payments 111A. Non-entitlement of an offshore company to refund PART VIIA FUND FOR TAX REFUND 111B. Establishment of fund for Tax Refund 111C. Non applicability of section 14A of the Financial Procedure Act 1957

10 053e.FM Page 10 Thursday, April 6, :07 PM 10 Laws of Malaysia ACT 53 PART VIII OFFENCES AND PENALTIES Section 112. Failure to furnish return or give notice of chargeability 113. Incorrect returns 114. Wilful evasion 115. Leaving Malaysia without payment of tax 116. Obstruction of officers 117. Breach of confidence 118. Offences by officials 119. Unauthorized collection 119A. Failure to keep records 120. Other offences 121. Additional provisions as to offences under sections 113, 115, 116, 118 and Tax, etc., payable notwithstanding institution of proceedings 123. (Deleted) 124. Power to compound offences and abate or remit penalties 125. Recovery of penalties imposed under Part VIII 126. Jurisdiction of subordinate court PART IX EXEMPTIONS, REMISSION AND OTHER RELIEF 127. Exemptions from tax: general 127A. Cessation of exemption 128. (Deleted) 129. Remission of tax 129A. Other relief 130. Non-resident citizen relief 131. Relief in respect of error or mistake 132. Double taxation arrangements 133. Unilateral relief from double taxation

11 053e.FM Page 11 Thursday, April 6, :07 PM Income Tax 11 PART IXA SPECIAL INCENTIVE RELIEF Section 133A. Special incentive relief PART X SUPPLEMENTAL Chapter 1 Administration 134. The Director General and his staff 135. Power of Minister to give directions to Director General 136. Delegation of Director General s functions 137. Identification of officials 138. Certain materials to be treated as confidental Chapter 2 Controlled companies and powers to protect the revenue in case of certain transactions 139. Controlled companies 140. Power to disregard certain transactions 141. Powers regarding certain transactions by non-residents 142. Evidential provisions Chapter 3 Miscellaneous 143. Errors and defects in assessments, notices and other documents 144. Power to direct where returns, etc., are to be sent 145. Service of notices 146. Authentication of notices and other documents 147. Free postage 148. Provisions as to approvals and directions given by Minister or Director General 149. Annulment of rules and orders laid before Dewan Rakyat 150. Power to approve pension or provident fund, scheme or society 151. Procedure for making refunds and repayments 152. Forms

12 053e.FM Page 12 Thursday, April 6, :07 PM 12 Laws of Malaysia ACT 53 Section 152A. Electronic medium 153. Restriction on persons holding themselves out as tax agents, tax consultants, etc Power to make rules 154A. Power to enter into an agreement with regard to tax liability 155. Repeals 156. Transitional and saving provisions SCHEDULE 1 SCHEDULE 2 SCHEDULE 3 SCHEDULE 4 SCHEDULE 4A (Deleted) SCHEDULE 4B SCHEDULE 4C (Deleted) SCHEDULE 5 SCHEDULE 6 SCHEDULE 7 SCHEDULE 7A SCHEDULE 7B SCHEDULE 8 SCHEDULE 9

13 053e.FM Page 13 Thursday, April 6, :07 PM 13 LAWS OF MALAYSIA Act 53 INCOME TAX ACT 1967 An Act for the imposition of income tax. [Throughout Malaysia 28 September 1967] PART I PRELIMINARY Short title and commencement 1. (1) This Act may be cited as the Income Tax Act (2) (Omitted). (3) This Act shall have effect for the year of assessment 1968 and. Interpretation 2. (1) In this Act, unless the context otherwise requires adjusted income, in relation to a source and a basis period, means the Employees Provident Fund adjusted income ascertained in accordance with this Act; adjusted loss, in relation to a source and a basis period, means adjusted loss ascertained in accordance with this Act; aggregate income, in relation to a person and a year of assessment, means aggregate income ascertained in accordance with this Act; approved loan means any loan or credit made to the Government, State Government (including any loan or credit made to a person other than the Government or State Government where the loan or credit is guaranteed by the Government or State Government), local authority or statutory body; or

14 053e.FM Page 14 Thursday, April 6, :07 PM 14 Laws of Malaysia ACT 53 any loan or credit other than a loan or credit of the kind specified in paragraph, made to a person pursuant to an application received prior to 25 October 1996 where the amount of such loan or credit exceeds two hundred and fifty million ringgit, by a person pursuant to an application received prior to 25 October 1996 not resident in Malaysia: Provided that (i) the loan or credit has been approved by the Minister of Finance; and (ii) the loan or credit agreement was executed in Malaysia or where the loan or credit agreement with the prior approval of the Minister was executed outside Malaysia; approved operational headquarters company has the meaning assigned thereto by section 60E; approved scheme means the Employees Provident Fund or any pension or provident fund, scheme or society approved by the Director General under section 150; assessment means any assessment or additional assessment made under this Act; authorized officer means, within the scope of his authority an officer authorized by subsections 136(1) to (4) to exercise any function of the Director General; or an officer authorized under subsection 136(5) to exercise or assist in exercising any such function; basis period, in relation to a person, a source of his and a year of assessment, means such basis period, if any, as is ascertained in accordance with section 21 or 21A; basis year has the meaning assigned by section 20; body of persons means an unincorporated body of persons (not being a company), including a Hindu joint family but excluding a partnership; building includes any structure erected on land (not being plant or machinery);

15 053e.FM Page 15 Thursday, April 6, :07 PM Income Tax 15 business includes profession, vocation and trade and every manufacture, adventure or concern in the nature of trade, but excludes employment; Central Bank means the Central Bank of Malaysia established under section 3 of the Central Bank of Malaysia Act 1958 [Act 519]; chargeable income in relation to a person and a year of assessment, means chargeable income ascertained in accordance with this Act; Clerk means the Clerk to the Special Commissioners; company means a body corporate and includes any body of persons established with a separate legal identity by or under the laws of a territory outside Malaysia; composite assessment means a composite assessment made in accordance with section 96A; controlled company means a company having not more than fifty members and controlled, in the manner described by section 139, by not more than five persons; co-operative society means any co-operative society registered under any written law relating to the registration of co-operative societies in Malaysia; director, in relation to a company, includes any person occupying the position of director (by whatever name called), any person in accordance with whose directions or instructions the directors are accustomed to act and any person who (c) is a manager of the company or otherwise concerned in the management of the company s business; is remunerated out of the funds of that business; and is, either on his own or with one or more associates within the meaning of subsection 139(7), the beneficial owner of (or able directly or through the medium of other companies or by any other indirect means to control) twenty per cent or more of the ordinary share capital of the company ( ordinary share capital here meaning all the issued share capital of the company, by whatever name called, other than capital the holders whereof have a right to a dividend

16 053e.FM Page 16 Thursday, April 6, :07 PM 16 Laws of Malaysia ACT 53 at a fixed rate but have no other right to share in the profits of the company); Director General means the Director General of Inland Revenue referred to in section 134; employee, in relation to an employment, means where the relationship of master and servant subsists, the servant; where that relationship does not subsist, the holder of the appointment or office which constitutes the employment; employer, in relation to an employment, means where the relationship of master and servant subsists, the master; where that relationship does not subsist, the person who pays or is responsible for paying any remuneration to the employee who has the employment, notwithstanding that that person and the employee may be the same person acting in different capacities; employment means employment in which the relationship of master and servant subsists; any appointment or office, whether public or not and whether or not that relationship subsists, for which remuneration is payable; executor means the executor, administrator or other person administering or managing the estate of a deceased person; foreign tax means any tax on income (or any other tax of a substantially similar character) chargeable or imposed by or under the laws of a territory outside Malaysia; Hindu joint family means what in any system of law prevailing in India is known as a Hindu joint family or coparcenary; husband who elects means the husband who is referred to in paragraph 45(2);

17 053e.FM Page 17 Thursday, April 6, :07 PM Income Tax 17 incapacitated person means a minor or a person adjudged under any law to be in a state of unsoundness of mind (however described); individual means a natural person; Inland Revenue Board of Malaysia means the Inland Revenue Board of Malaysia established under the Inland Revenue Board of Malaysia Act 1995 [Act 533]; lease includes a sublease, a tenancy for three years or less and any agreement for a lease or sublease; Malaysia means the territories of the Federation of Malaysia, the territorial waters of Malaysia and the sea-bed and subsoil of the territorial waters, and includes any area extending beyond the limits of the territorial waters of Malaysia, and the sea-bed and subsoil of any such area, which has been or may hereafter be designated under the laws of Malaysia as an area over which Malaysia has sovereign rights for the purposes of exploring and exploiting the natural resources, whether living or non-living; market value, in relation to any thing, means the price which that thing would fetch if sold in a transaction between independent persons dealing at arm s length; Minister means the Minister for the time being charged with the responsibility for finance; offshore business activity has the meaning assigned thereto by the Labuan Offshore Business Activity Tax Act 1990 [Act 445]; offshore company has the meaning assigned thereto by the Labuan Offshore Business Activity Tax Act 1990; partnership means an association of any kind (including joint adventures, syndicates and cases where a party to the association is itself a partnership) between parties who have agreed to combine any of their rights, powers, property, labour or skill for the purpose of carrying on a business and sharing the profits therefrom, but excludes a Hindu joint family although such a family may be a partner in a partnership; person includes a company, a body of persons and a corporation sole; premises means a building (or, where a building is divided into separate parts used or capable of being used as separate

18 053e.FM Page 18 Thursday, April 6, :07 PM 18 Laws of Malaysia ACT 53 residential flats or otherwise as separate tenements, any one of those parts) and includes any other building or part of a building used or intended to be used in conjunction therewith as domestic offices or for some other ancillary purpose; and any land attached thereto for use by way of amenity as garden or grounds; prescribed means prescribed by rules made under section 154 or, in relation to a form other than the form mentioned in subsection 138(1), prescribed under section 152; public entertainer means a stage, radio or television artiste, a musician, athlete or an individual exercising any profession, vocation or employment of a similar nature; rent includes any sum paid for the use or occupation of any premises or part thereof or for the hire of any thing; resident means resident in Malaysia for the basis year for a year of assessment by virtue of section 7 or 8; royalty includes any sums paid as consideration for the use of, or the right to use (i) copyrights, artistic or scientific works, patents, designs or models, plans, secret processes or formulae, trademarks or tapes for radio or television broadcasting, motion picture films, films or video tapes or other means of reproduction where such films or tapes have been or are to be used or reproduced in Malaysia or other like property or rights; (ii) know-how or information concerning technical, industrial, commercial or scientific knowledge, experience or skill; income derived from the alienation of any property, know-how or information mentioned in paragraph of this definition; (c) (d) (Deleted by Act 293);

19 053e.FM Page 19 Thursday, April 6, :07 PM Income Tax 19 Securities Commission means the Securities Commission established under section 3 of the Securities Commission Act 1993 [Act 498]; service director, in relation to a company, means a director (not being a person to whom, together with his associates within the meaning of subsection 139(7), if any, there would be distributed, on the distribution of a dividend by the company, more than five per cent of the dividend) who is employed in the service of the company in a managerial or technical capacity, and is not, either on his own or with any associate within that meaning, the beneficial owner of (or able directly or through the medium of other companies or by any other indirect means to control) more than five per cent of the ordinary share capital of the company ( ordinary share capital here having the same meaning as in the definition of director in this subsection); share, in relation to a company, includes stock other than debenture stock; source means a source of income; Special Commissioners means the Special Commissioners of Income Tax referred to in section 98; statutory authority means any authority or body established by or under a written law (not being an authority or body established under the Companies Act 1965 [Act 125], or any written law of a corresponding kind in force before the commencement of that Act in any place comprised in Malaysia on 1 January 1968) to discharge any functions of a public nature, including the provision of public utility and similar services; statutory income, in relation to a person, a source and a year of assessment, means statutory income ascertained in accordance with this Act; statutory order means an order having legislative effect; stock in trade, in relation to a business, means property of any description, whether movable or immovable, being either property such as is sold in the ordinary course of the business or would be so sold if it were mature or if its manufacture, preparation or construction were complete; or

20 053e.FM Page 20 Thursday, April 6, :07 PM 20 Laws of Malaysia ACT 53 materials such as are used in the manufacture, preparation or construction of any such property as is referred to in paragraph of this definition, and includes any work in progress; tax means the tax imposed by this Act; total income, in relation to a person and a year of assessment, means total income ascertained in accordance with this Act; trust body, in relation to a trust, means the trust body provided for by section 61; wife means a woman who (whether or not she has gone through any religious or other ceremony) is regarded by virtue of any law or custom as the wife of a man or as one of his wives; wife who elects means the wife who is referred to in paragraph 45(2); year of assessment, subject to subsection (5), means calendar year. (2) Any reference in this Act to income shall, if the income is not described as being income of a particular kind, be construed as a reference to income generally or to gross, adjusted, statutory, aggregate, total or chargeable income as the context and circumstances may require. (3) Unless the context otherwise requires, payable for and receivable for, when used in this Act with reference to a period, mean payable or receivable, as the case may be, for that period or any part thereof. (4) Where (c) (d) two or more companies are related within the meaning of section 6 of the Companies Act 1965; a company is so related to another company which is itself so related to a third company; the same persons hold more than fifty per cent of the shares in each of two or more companies; or each of two or more companies is so related to at least one of two or more companies to which paragraph (c) applies,

21 053e.FM Page 21 Thursday, April 6, :07 PM Income Tax 21 all the companies in question are in the same group for the purposes of this Act. (5) References in this Act to a year or years of assessment shall be construed (except where Schedule 9 provides otherwise) as references to a year or years of assessment in relation to which this Act has effect by virtue of subsection 1(3). (6) For the purposes of this Act (c) the reference to tax in paragraph 79(e) shall be deemed to include a reference to any tax imposed by any of the repealed laws ( repealed laws in this subsection having the same meaning as in Schedule 9); the reference to this Act in section 81, paragraph 116(c) and section 153 shall be deemed to include references to each of the repealed laws; and the reference to functions under this Act in paragraph 116 shall be deemed to include a reference to functions under any of the repealed laws exercised by virtue of this Act. (7) Any reference in this Act to interest shall apply, mutatis mutandis, to gains or profits received and expenses incurred, in lieu of interest, in transactions conducted in accordance with the Syariah. (8) Subject to subsection (7), any reference in this Act to the disposal of an asset or a lease shall exclude any disposal of an asset or lease by or to a person pursuant to a scheme of financing approved by the Central Bank or the Securities Commission, as a scheme which is in accordance with the principles of Syariah where such disposal is strictly required for the purpose of complying with those principles but which will not be required in any other schemes of financing. PART II IMPOSITION AND GENERAL CHARACTERISTICS OF THE TAX Charge of income tax 3. Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each year of assessment upon

22 053e.FM Page 22 Thursday, April 6, :07 PM 22 Laws of Malaysia ACT 53 the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia. 3A. (Deleted by Act 451). Non-chargeability to tax in respect of offshore business activity 3B. Notwithstanding section 3, tax shall not be charged under this Act on income in respect of an offshore business activity carried on by an offshore company. 3C. (Deleted by Act 578). Classes of income on which tax is chargeable 4. Subject to this Act, the income upon which tax is chargeable under this Act is income in respect of (c) (d) (e) (f) gains or profits from a business, for whatever period of time carried on; gains or profits from an employment; dividends, interest or discounts; rents, royalties or premiums; pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs; gains or profits not falling under any of the foregoing paragraphs. Special classes of income on which tax is chargeable 4A. Notwithstanding section 4 and subject to this Act, the income of a person not resident in Malaysia for the basis year for a year of assessment in respect of (i) amounts paid in consideration of services rendered by the person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from, such persons;

23 053e.FM Page 23 Thursday, April 6, :07 PM Income Tax 23 (ii) (iii) amounts paid in consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; or rent or other payments made under any agreement or arrangement for the use of any moveable property, which is derived from Malaysia is chargeable to tax under this Act. Manner in which chargeable income is to be ascertained 5. (1) Subject to this Act, the chargeable income of a person upon which tax is chargeable for a year of assessment shall be ascertained in the following manner: (c) (d) (e) (f) first, the basis period for each of his sources for that year shall be ascertained in accordance with Chapter 2 of Part III; next, his gross income from each source for the basis period for that year shall be ascertained in accordance with Chapter 3 of that Part; next, his adjusted income from each source (or, in the case of a source consisting of a business, his adjusted income or adjusted loss from that source) for the basis period for that year shall be ascertained in accordance with Chapter 4 of that Part; next, his statutory income from each source for that year shall be ascertained in accordance with Chapter 5 of that Part; next, his aggregate income for that year and his total income for that year shall be ascertained in accordance with Chapter 6 of that Part; and next, his chargeable income for that year shall be ascertained in accordance with Chapter 7 of that Part: Provided that in ascertaining the chargeable income of an individual resident in Malaysia there shall be excluded the income consisting of interest accruing in or derived from

24 053e.FM Page 24 Thursday, April 6, :07 PM 24 Laws of Malaysia ACT 53 Malaysia and received from a person referred to in subsection 109C(4) in respect of interest paid or credited to that individual. (2) For the purposes of this Act, any income of a person from any source or sources, and any adjusted loss of a person from any source or sources consisting of a business, may be ascertained for any period (including a year of assessment) notwithstanding that the person in question may have ceased to possess that source or any of those sources prior to that period; or in that period that source or any of those sources may have ceased to produce gross income or may not have produced any gross income. (3) (4) (Deleted by Act 337). Rates of tax 6. (1) Except where this subsection provides otherwise and subject to section 6A, income tax shall be charged for each year of assessment upon the chargeable income of every person for that year at the appropriate rate as specified in Part I of Schedule l; subject to section 109 but notwithstanding any other provisions of this Act, where (i) (ii) the income of a person not resident in Malaysia for the basis year for a year of assessment consists of interest (other than interest on an approved loan or interest of the kind referred to in paragraph 33 of Part 1, Schedule 6) or royalty derived from Malaysia; or the income of a person (other than a company) not resident in Malaysia for the basis year for a year of assessment consists of remuneration or other income in respect of services performed or rendered in Malaysia by a public entertainer, income tax thereon shall be charged at the appropriate rate as specified in Part II of Schedule 1; (c) (Deleted by Act 451);

25 053e.FM Page 25 Thursday, April 6, :07 PM Income Tax 25 (d) income tax shall be charged for each year of assessment upon the chargeable income of every co-operative society for that year at the appropriate rate as specified in Part IV of Schedule 1; (e) subject to section 109B but notwithstanding any other provisions of this Act, income tax shall be charged for each year of assessment upon the income of a person charged under section 4A at the appropriate rate as specified under Part V of Schedule 1; (f) subject to section 109C but notwithstanding any other provisions of this Act, income tax shall be charged for each year of assessment upon the income of an individual resident in Malaysia which consists of interest (other than interest exempt from tax under this Act or any order made thereto) accruing in or derived from Malaysia and received from a person referred to in subsection 109C(4) at the appropriate rate as specified under Part VI of Schedule 1; (g) (Deleted by Act 624); (h) income tax shall be charged for each year of assessment upon the chargeable income of a foreign fund management company in relation to the source consisting of the provision of fund management services to foreign investors for that year at the appropriate rate as specified in Part IX of Schedule 1; (i) subject to section 109D but notwithstanding any other provisions of this Act, income tax shall be charged for each year of assessment upon the income of a non-resident unit holder which consists of income distributed by the unit trust referred to in section 61A at the appropriate rate as specified under Part X of Schedule 1. (2) The Minister, where he is satisfied that it is the intention of the Government to promote the introduction into the Dewan Rakyat of a Bill to vary in any particular way the rates of tax, may by statutory order declare those rates to be varied in that way; and, where he does so, then, subject to subsections (3) and (4), this Act shall have effect as if those rates as so varied had come into force at the beginning of the first year of assessment for which the Bill seeks to vary those rates. (3) Every order made under subsection (2) shall be laid before the Dewan Rakyat as soon as may be after it has been made and shall cease to have effect

26 053e.FM Page 26 Thursday, April 6, :07 PM 26 Laws of Malaysia ACT 53 at the expiration of a period of three months (or such longer period as may be specified by resolution of the Dewan Rakyat) beginning on the date when the order was made; or on the coming into force (after the date when the order was made) of an Act varying the rates of tax, whichever first occurs. (4) Where an order made under subsection (2) ceases to have effect pursuant to subsection (3) the amount of any tax which (i) has been charged by any assessment by reference to the order; and (ii) is payable (whether or not it is due or due and payable) but not paid at the date when the order ceases to have effect, shall be taken to be amended to the amount which would have been payable if the order had not been made; and so much of any tax paid by any person in consequence of the order as exceeds the tax payable under the law in force immediately after the date when the order ceases to have effect shall be repaid by the Director General if that person (i) makes a claim therefor in the prescribed form within one year after that date; and (ii) furnishes to the Director General such further particulars of the claim as the Director General may require. (5) In subsections (2) and (3) any reference to rates of tax includes a reference to the rate of any abatement specified under Schedule 1. Tax rebate 6A. (1) Subject to this section, income tax charged for each year of assessment upon the chargeable income of every individual resident for the basis year for that year shall be rebated for that

27 053e.FM Page 27 Thursday, April 6, :07 PM Income Tax 27 year of assessment in accordance with subsections (2), (3) and (3A) before any set off is made under section 110 and any credit is allowed under section 132 or 133. (2) A rebate shall be granted for a year of assessment in the following amounts: (c) three hundred and fifty ringgit in the case of an individual who has been allowed a deduction under paragraph 46(1) for that year of assessment where his chargeable income for that year of assessment does not exceed thirty-five thousand ringgit; three hundred and fifty ringgit in the case of an individual who has been allowed a deduction under subsection 47(1) or (2) for that year of assessment where his chargeable income for that year of assessment does not exceed thirty-five thousand ringgit; three hundred and fifty ringgit in the case of a wife who has been allowed a deduction under section 45A for that year of assessment where her chargeable income for that year of assessment does not exceed thirty-five thousand ringgit. (3) A rebate shall be granted for a year of assessment for any zakat, fitrah or any other Islamic religious dues payment of which is obligatory and which are paid in the basis year for that year of assessment to, and evidenced by a receipt issued by, an appropriate religious authority established under any written law. (3A) A rebate of five hundred ringgit shall be granted to an individual for a year of assessment in respect of the purchase, evidenced by a receipt, of a personal computer in the basis year for that year of assessment: Provided that no rebate under this subsection shall be granted to that individual (c) for the four following years of assessment; where the personal computer was used for the purposes of his business; or where such rebate has been granted to the spouse.

28 053e.FM Page 28 Thursday, April 6, :07 PM 28 Laws of Malaysia ACT 53 (4) Where the total amount of the rebate under subsections (2), (3) and (3A) exceeds the income tax charged (before any such rebate) for any year of assessment, the excess shall not be paid to the individual or available as a credit to set off his tax liability for that year of assessment or any subsequent year. Tax rebate on loan to a small business 6B. (1) Subject to this section, income tax charged for each year of assessment upon the chargeable income of a person who gives any loan to a small business shall be rebated by an amount equivalent to two per cent prorated per annum, or such other rate as may be prescribed from time to time by the Minister, on the outstanding balance of the loan before any set off is made under section 110 and any credit is allowed under section 132 or 133: Provided that where the rebate exceeds the income tax charged (before any such rebate) for any year of assessment, the excess shall not be paid to that person and shall not be available as a credit to set off any tax liability for that year of assessment but it shall be available as a credit to set off any income tax chargeable for any subsequent year of assessment. (2) Loan to a small business means a loan that conforms to the guidelines laid down by an appropriate authority designated by the Minister from time to time. Tax rebate on fees 6C. Income tax charged for each year of assessment upon the chargeable income of an individual shall be rebated in respect of any fee paid to the Government in the basis year for that year of assessment pursuant to any order made under section 3 of the Fees Act 1951 [Act 209], for the issue of an Employment Pass, Visit Pass (Temporary Employment) or Work Pass before any set off is made under section 110 and any credit is allowed under section 132 or 133: Provided that where the rebate exceeds the income tax charged (before any such rebate) for any year of assessment, the excess shall not be paid to that individual, and shall not be available as a credit to set off his tax liability for any subsequent year of assessment.

29 053e.FM Page 29 Thursday, April 6, :07 PM Income Tax 29 Residence: individuals 7. (1) For the purposes of this Act, an individual is resident in Malaysia for the basis year for a particular year of assessment if he is in Malaysia in that basis year for a period or periods amounting in all to one hundred and eightytwo days or more; he is in Malaysia in that basis year for a period of less than one hundred and eighty-two days and that period is linked by or to another period of one hundred and eighty-two or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in that basis year for the year of assessment immediately following that particular year of assessment: Provided that any temporary absence from Malaysia (i) (ii) (iii) connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad; owing to ill-health involving himself or a member of his immediate family; and in respect of social visits not exceeding fourteen days in the aggregate, shall be taken to form part of such period or that period, as the case may be, if he is in Malaysia immediately prior to and after that temporary absence; (c) he is in Malaysia in that basis year for a period or periods amounting in all to ninety days or more, having been with respect to each of any three of the basis years for the four years of assessment immediately preceding that particular year of assessment either (i) resident in Malaysia within the meaning of this Act for the basis year in question; or

30 053e.FM Page 30 Thursday, April 6, :07 PM 30 Laws of Malaysia ACT 53 (d) (ii) in Malaysia for a period or periods amounting in all to ninety days or more in the basis year in question; or he is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment following that particular year of assessment, having been so resident for each of the basis years for the three years of assessment immediately preceding that particular year of assessment. (1A) For the purposes of subsection (1), an individual shall be deemed to be in Malaysia for a day if he is present in Malaysia for part of that day and in ascertaining the period for which he is in Malaysia during any year, any day (within paragraphs 1 and (c)) for which he is in Malaysia shall be taken into account whether or not that day forms part of a continuous period of days during which he is in Malaysia. (2) (Deleted by Act A226). Residence: companies and bodies of persons 8. (1) For the purposes of this Act (c) a Hindu joint family is resident in Malaysia for the basis year for a year of assessment if its manager or karta is resident for that basis year; a company or a body of persons (not being a Hindu joint family) carrying on a business is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its business or of any one of its businesses, as the case may be, are exercised in Malaysia; and any other company or body of persons (not being a Hindu joint family) is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority. (2) If it is shown that it has been established as between the Director General and a company or body of persons for any tax

31 053e.FM Page 31 Thursday, April 6, :07 PM Income Tax 31 purpose that the company or body was resident in Malaysia for the basis year for any year of assessment, it shall be presumed until the contrary is proved that the company or body was resident in Malaysia for the purposes of this Act for the basis year for every subsequent year of assessment (Deleted by Act A226). 11. (Deleted by Act 624). Derivation of business income in certain cases 12. (1) Where for the purposes of this Act it is necessary to ascertain any gross income of a person derived from Malaysia from a business of his, then subject to subsection (2), so much of the gross income from the business as is not attributable to operations of the business carried on outside Malaysia shall be deemed to be derived from Malaysia; notwithstanding paragraph, if the business consists wholly or partly of the manufacturing, growing, mining, producing or harvesting in Malaysia of any article, product, produce or other thing (i) (ii) the gross income from any sale of the article, product, produce or other thing taking place outside Malaysia in the course of carrying on the business; or where the article, product, produce or other thing is exported in the course of carrying on the business and subparagraph (i) does not apply, an amount equal to the market value of the article, produce, product or other thing at the time of its export, shall be deemed to be gross income of that person derived from Malaysia from the business. (2) Where in the case of a business to which paragraph (1) applies the business or a part thereof is carried on in Malaysia;

32 053e.FM Page 32 Thursday, April 6, :07 PM 32 Laws of Malaysia ACT 53 any of the gross income of the business (from wherever derived) consists of a dividend or interest to which subsection 24(4) or (5) applies; and (c) the dividend or interest relates either (i) to a share, debenture, mortgage or other source which forms or has formed part of the stock in trade of the business or, where only part of the business is carried on in Malaysia, of that part of the business; or (ii) to a loan of the kind mentioned in subsection 24(5) granted in the course of carrying on business or that part of the business, as the case may be, so much of that gross income as consists of that dividend or interest shall be deemed to be derived from Malaysia. General provisions as to employment income 13. (1) Gross income of an employee in respect of gains or profits from an employment includes any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (whether in money or otherwise) in respect of having or exercising the employment; an amount equal to the value of the use or enjoyment by the employee of any benefit or amenity (not being a benefit or amenity convertible into money) provided for the employee by or on behalf of his employer, excluding (i) a benefit or amenity consisting of medical or dental treatment or a benefit for child care; (ii) a benefit or amenity consisting of (A) leave passages for travel within Malaysia not exceeding three times in any calendar year; or (B) one leave passage for travel between Malaysia and any place outside Malaysia in any calendar year, limited

33 053e.FM Page 33 Thursday, April 6, :07 PM Income Tax 33 to a maximum of three thousand ringgit: (c) (d) (e) (iii) (iv) Provided that the benefit or amenity enjoyed under this subparagraph is confined only to the employee and members of his immediate family; a benefit or amenity used by the employee solely in connection with the performance of his duties; and a benefit or amenity falling under paragraph (c); an amount in respect of the use or enjoyment by the employee of living accommodation in Malaysia (including living accommodation in premises occupied by his employer) provided for the employee by or on behalf of the employer rent free or otherwise; so much of any amount (other than a pension, annuity or periodical payment falling under paragraph 4(e)) received by the employee, whether before or after his employment ceases, from a pension or provident fund, scheme or society not approved for the purpose of this Act as would not have been so received if his employer had not made contributions in respect of the employee to the fund, scheme or society or its trustees; and any amount received by the employee, whether before or after his employment ceases, by way of compensation for loss of the employment, including any amount in respect of (i) a covenant entered into by the employee restricting his right after leaving the employment to engage in employment of a similar kind; or (ii) any agreement or arrangement having the like effect. (2) Gross income in respect of gains or profits from an employment for any period during which the employment is exercised in Malaysia;

34 053e.FM Page 34 Thursday, April 6, :07 PM 34 Laws of Malaysia ACT 53 (c) (d) (e) for any period of leave attributable to the exercise of the employment in Malaysia; for any period during which the employee performs outside Malaysia duties incidental to the exercise of the employment in Malaysia; for any period during which a person is a director of a company and that company is resident in Malaysia for the basis year for a year of assessment and within that basis year that period or part of that period falls; or for any period during which the employment is exercised aboard a ship or aircraft used in a business operated by a person who is resident in Malaysia for the basis year for a year of assessment and within that basis year that period or part of that period falls, shall be deemed to be derived from Malaysia. (3) Gross income in respect of gains or profits from an employment in the public services or the service of a statutory authority for any period during which the employment is exercised outside Malaysia; or for any period of leave attributable to the exercise of the employment outside Malaysia, shall be deemed to be derived from Malaysia if the employee is a citizen. (4) For the purposes of subsection (1) a benefit, amenity or living accommodation provided for an employee as therein mentioned shall be deemed to be used or enjoyed by the employee if it is used or enjoyed by his spouse, family, servants, dependants or guests. (5) Any question whether any gross income is gross income for a period mentioned in subsection (2) shall be decided by applying the appropriate provisions of Chapter 3 of Part III as if that period were the basis period for a year of assessment. 13A. (Deleted by Act 293).